ANALYSIS: SIA’s results show Kangaroo Route pressures

Singapore Airlines' group revenue by area of original sale in fiscal year 2012-13 highlights the carrier's long-term shift to Asia - and hints at the increasing challenges SIA faces on the prized Kangaroo route.

In its audited results for the fiscal year ended 31 March 2013, SIA breaks down revenue origination into five regions: East Asia, Europe, Southwest Pacific, Americas and West Asia/Africa. Across all five regions, total revenue generated was S$9.1 billion ($7.3 billion) for the year - or S$13.4 billion with non-scheduled services and incidental revenue.

East Asia's revenue contribution grew by 4.4% to S$5 billion. Revenue from the Southwest Pacific grew by 4.6% to S$1.6 billion, and from the Americas grew by 1.6% to S$760 million.

The two losers were Europe, where revenue origination fell by 4.1% to S$1.4 billion, and West Asia/Africa, where revenue origination dropped by 5.3% to S$437 million.

A quick comparison with SIA's revenue by area of original sale (excluding exceptional items) for its fiscal year 2005-06 shows that in the last eight years East Asia's contribution to revenue rose by 8.3 percentage points to 54.3%. The revenue contribution of the Americas fell by 1.8 percentage points to 8.3%, and the contribution from West Asia/Africa fell by 2.6 percentage points to 4.8%.

On the key Kangaroo route legs, the share of revenue that SIA derived from Europe in fiscal year 2012-13 fell by 4.7 percentage points to 14.8% compared with fiscal year 2005-06, while the Southwest Pacific's share of revenue rose by one percentage point to 17.8%.

Although the revenue contribution from the Southwest Pacific region has held up, capacity data from Flightglobal's Capstats database highlights the increased amount of capacity on the Kangaroo leg that SIA must contend with to earn this revenue.

In 2013, SIA's capacity on Singapore-Australasia routes will amount to 1.8 million seats, equal to the capacity it deployed on Australasian routes in 2005 (the first year for which Capstats data is available).

In 2013, the big three Middle Eastern carriers (Qatar Airways, Etihad Airways and Emirates) and Qantas Airways will have a capacity of 1.6 million seats on Middle East-Australasian routes, an increase of more than five times over 2005, when there were just 294,000 seats on Middle East-Australasian routes.

Similarly, in 2013, SIA will deploy a capacity of 1.4 million seats on Singapore-Europe routes, down from 1.7 million in 2012, when SIA still flew to Athens. According to Capstats, SIA flew 1.3 million seats to Europe in 2005.

The Gulf carriers, however, will deploy capacity of 10 million seats on Middle East-Europe routes in 2013, nearly thrice their total capacity of 3.7 million seats in 2005.

In addition, China's big carriers, notably China Southern, are becoming much more assertive on the Kangaroo route.

SIA has responded to this challenge by diversifying its business, with a greater focus on the Asia-Pacific. This includes increased integration with regional unit Silkair and Virgin Australia, in which the Singapore flag carrier upped its stake to 19.9% from 10% in late April.

SIA is also working to protect its flank in the booming Asian budget travel segment through its launch of long-haul low-cost unit Scoot in 2012. In addition, SIA owns a 32.8% in low-cost carrier Tiger Airways.

As the Kangaroo route gets ever more competitive, SIA's efforts closer to home could well prove crucial to the carrier's long-term profitability.